Don't Buy Ahresty Corporation (TSE:5852) For Its Next Dividend Without Doing These Checks

Ahresty Corporation (TSE:5852) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Ahresty's shares before the 28th of March to receive the dividend, which will be paid on the 11th of June.

The company's next dividend payment will be JP¥18.00 per share, and in the last 12 months, the company paid a total of JP¥15.00 per share. Based on the last year's worth of payments, Ahresty stock has a trailing yield of around 2.1% on the current share price of JP¥701.00. If you buy this business for its dividend, you should have an idea of whether Ahresty's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ahresty's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It distributed 39% of its free cash flow as dividends, a comfortable payout level for most companies.

View our latest analysis for Ahresty

Click here to see how much of its profit Ahresty paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Ahresty reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Ahresty has lifted its dividend by approximately 2.3% a year on average.

Remember, you can always get a snapshot of Ahresty's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Should investors buy Ahresty for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Ahresty don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 1 warning sign for Ahresty you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.